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Question
Differentiate between contract manufacturing and setting up wholly-owned production subsidiary abroad.
Solution
|
Basis of difference |
Contract manufacturing |
Wholly owned production subsidiary |
|
Meaning |
A firm hires a local manufacturer in another country on a contractual basis to produce goods as per its requirements. |
The parent company buys equity in a firm in another country and acquires full control over it. |
|
Control |
The firm has limited control over the local manufacturer. |
The parent company has full control over its operations in another country through the subsidiary. |
|
Investment |
Negligible investment is made abroad. |
The parent company buys up the entire equity of the firm abroad and makes this firm it's subsidiary. |
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